Just as the Bank of England gets ready to release the latest Inflation Report and announce its May interest rates decision a think tank has warned of tougher times ahead for the UK economy.

Consumer spending growth will grind to a halt by 2018 as inflation is set to climb by the end of the year, the National Institute of Economic and Social Research (NIESR) warned.

It said consumer prices index (CPI) inflation will peak at 3.4 per cent in the final three months of 2017, the highest level since early 2012, before steadily easing back towards the bank's 2 per cent target.

GDP growth is below the 2% currently forecast by the Bank of England

The Bank of England is expected today to forecast steady economic growth for the year ahead, with GDP improving from a slow-moving start to the year.

It will present the latest Inflation Report today, which is published four times a year, detailing its latest growth and inflation forecasts and noting risks to the economy.

The sharp slowdown in growth to 0.3 per cent seen in the first three months of 2017 was a sign that higher prices are already taking their toll, it cautioned.

NIESR said: 'The slowdown can be largely attributed to a softening in service sector output, consistent with a moderation in consumer spending, which was the engine of growth in 2016.'

'We expect consumer spending to remain weak throughout this year and next as rising inflation erodes the purchasing power of households.'

'Economists have increased forecasts for 2017 growth since February, raising their GDP predictions from 1.6 per cent to 1.7p per cent, while cutting their unemployment forecasts from 5.2 per cent to 5 per cent.

Outgoing rate-setter Kristin Forbes is likely to repeat her call for a hike to 0.5 per cent after breaking rank in March on fears over surging inflation, which marked the first split decision since last July.

But most economists believe she will remain the only one after the worse-than-expected GDP reading, which came after 0.7 per cent growth in the previous three months.

Fixed Income manager at Allianz Global Investors, Mike Riddel commented on how the pound's decline and is hitting the UK consumer.

Outgoing rate-setter Kristin Forbes is likely to repeat her call for a hike to 0.5%.

'Long term investment implications include the UK consumer is likely to be worse off this year, and UK retailers should be the first to feel the effects.'

'This environment may make it difficult for consumers to deal with higher rates in the near term, which could make it harder for the BOE to push ahead with interest-rate rises.'

'It is very hard for consumers to continue driving UK economic growth given that the UK savings rate is now at a record low.'

Berenberg's senior UK economist, Kallum Pickering believes the time for excessively loose monetary policy is coming to an end though and we could see some more hawkish comments tomorrow than we have seen lately.

He expects the Bank of England to further prepare the ground work for the first rate hike.

He said two key themes that will likely dominate the BoE's thinking over the medium-term; 'balance of demand and supply amid Brexit uncertainty; and the challenges surrounding the communication of the first rate hike'.

'Thanks to Brexit, slower growth is the new normal,' he said. 'The 2.0 per cent real GDP growth the BoE forecast in February is probably a little above what the economy can sustain in the long-run outside of the single market.'

'We expect Brexit to reduce trend growth to 1.8 per cent per year from 2.2 per cent previously.'